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Banking Operations > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

A(n) ___________________ is a machine located at the merchant’s place of business which allows depositors to use their debit card to pay for purchases directly.

A

POS

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2
Q

A(n) _____________________ is one which offers its full range of banking services from several locations.

A

branch bank

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3
Q

A(n) _____________________ is one which offers its full range of banking services from only one location.

A

unit bank

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4
Q

A(n) ________________________ is a corporation chartered for the specific purpose of holding the stock of one or more banks, often along with other businesses.

A

bank holding company

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5
Q

Managers who value fringe benefits, plush offices, and ample travel budgets over the pursuit of maximum returns for stockholders are exhibiting signs of _________________________.

A

expense preference behavior

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6
Q

A(n) __________________________ can invest in corporate stock as well as loan money to help finance the start of new ventures or support the expansion of existing businesses.

A

merchant bank

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7
Q

A bank which operates exclusively over the internet is known as a ___________ bank.

A

virtual

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8
Q

A(n) _____________________ is a special type of holding company that may offer the broadest range of financial services, including dealing in and underwriting securities, and selling and underwriting insurance.

A

Financial Holding Company (FHC)

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9
Q

The key problem in a large money center bank is ________________. Managers may be knowledgeable about banking practices but may be less informed about products and services of subsidiary companies.

A

span of control

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10
Q

The Gramm-Leach-Bliley Act moved the U.S. banking industry closer to the concept of ___________ banking in which banks merge with security and insurance firms and various other financial products.

A

universal

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11
Q

A bank that is not owned by a holding company is called a(n) ______________ bank.

A

independent

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12
Q

___________________ is a larger view of how modern corporations operate, and analyzes the relationship between a firm’s owners and its managers.

A

Agency theory

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13
Q

Many experts believe that lower agency costs and better company performance depend upon the effectiveness of ____________ the relationship that exists among managers, the board of directors, stockholders, and other stakeholders.

A

corporate governance

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14
Q

___________________________ is the idea that as the output grows, cost of production per unit of goods and services will grow at a lower rate.

A

Economies of scale

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15
Q

______________________ is the idea that cost of producing multiple services, using the same organization and resources, will grow at a lower rate as the product mix expands.

A

Economies of scope

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16
Q

___________________ is the committee selected by stockholders to set policies and monitor the performance of a bank.

A

Board of directors

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17
Q

Bank size is not considered a significant factor in determining how banks are organized.

A

FALSE

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18
Q

Nearly three quarters of all U.S. banks exceed $100 million in asset size apiece.

A

FALSE

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19
Q

Nearly all U.S. banks with federal or state charters have their deposits insured by the Federal Deposit Insurance Corporation.

A

TRUE

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20
Q

State-chartered banks in the United States represent about a quarter of all U.S.-chartered banks, while national banks account for approximately three quarters of all U.S. chartered banks.

A

FALSE

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21
Q

The majority of all U.S. banks are members of the Federal Reserve System.

A

FALSE

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22
Q

A banking corporation, chartered by either federal or state governments, that operates only one full-service office is called a unit bank.

A

TRUE

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23
Q

Over half of all U.S. states today limit branching activity.

A

FALSE

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24
Q

An average U.S. bank is larger in size (in terms of number of branch offices) than an average Canadian bank.

A

FALSE

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25
Q

Despite the rapid growth of automation in U.S. banking, there are more full-service branch banking offices than automated teller machines across the whole U.S.

A

FALSE

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26
Q

In the United States there are more one-bank holding companies than multi-bank holding companies.

A

TRUE

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27
Q

Financial holding companies hold more than 90 percent of the industry’s assets in the United States.

A

TRUE

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28
Q

Research evidence suggests that banks taken over by interstate banking organizations have generally increased their market share over their competitors within the same state and are generally more profitable than their competitors.

A

FALSE

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29
Q

The concentration of bank deposits at the local level (that is in urban communities and rural counties) has displayed only moderate changes in recent years.

A

TRUE

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30
Q

There is evidence that branch banks charge higher service fees for some banking services than unit banks, which reflects greater knowledge on the part of larger banks concerning true cost of service.

A

TRUE

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31
Q

A unit branch faces the risk of variability in earnings if the surrounding economy weakens and people and businesses move away to other market areas.

A

TRUE

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32
Q

Recent research suggests that branch banks tend to be more profitable than either unit or holding company banks, while interstate banks tend to be the most profitable of all.

A

FALSE

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33
Q

Less than 10 percent of the largest banks in the U.S. control almost 90 percent of the industry assets.

A

TRUE

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34
Q

Agency theory suggests that bank management will always pursue the goal of maximizing returns of the bank’s shareholders.

A

FALSE

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35
Q

Recent research suggests that the relationship between bank size and the cost of production per unit of output is roughly U shaped.

A

TRUE

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36
Q

Bank holding companies that want to achieve some reduction in earnings risk through interstate banking, can achieve the same level of risk reduction by entering any of the fifty states.

A

FALSE

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37
Q

Bank holding companies are allowed to own nonbank businesses as long as those businesses offer services closely related to banking.

A

TRUE

38
Q

Banks tend to have a higher proportion of outside directors than a typical manufacturing firm.

A

TRUE

39
Q

Banks which operate entirely on the web are known as invisible banks.

A

FALSE

40
Q

Banks acquired by holding companies are referred to as affiliated banks.

A

TRUE

41
Q

Bank organizational structure has become more complex in recent years.

A

TRUE

42
Q

There are only a very small number of unit banks in the U.S. today.

A

FALSE

43
Q

Traditional brick-and-mortar bank branch offices are on the decline in the U.S. today.

A

FALSE

44
Q

Community banks are usually smaller banks that are devoted principally to the markets for smaller, local deposits and loans.

A

TRUE

45
Q

X-efficiency is a concept which measures the divergence between the actual operating costs and the lowest possible operating costs of a financial services firm if it is operating under maximum efficiency.

A

TRUE

46
Q 
In banking, organizational form follows \_\_\_\_\_\_\_\_\_, because banks usually are organized in such a way as to carry out the tasks and supply the services demanded of them.
A. bank size
B. management's decision 
C. function
D. regulation
E. location
A

function

47
Q 
Which of the following is charged with setting policies and overseeing the performance of a bank?
A. Stockholders
B. Board of directors
C. Regulators
D. Depositors
E. None of the options are correct
A

Board of directors

48
Q

According to the textbook, large banks possess some potential advantages over small and medium-size banks. Which of the following is not such an advantage?
A. Greater diversification, geographically and by product line
B. Availability of financial capital at lower cost
C. Greater professional expertise to allocate capital to the most promising products and
services
D. Better positioned to take advantage of the opportunities afforded by interstate banking
E. All the options are advantages typically possessed by large banks

A

All the options are advantages typically possessed by large banks

49
Q

Before offering any financial service to the public, a bank in the United States must have a:
A. certificate of deposit insurance.
B. charter of incorporation.
C. list of established customers.
D. new building constructed to be the bank’s permanent home.
E. None of the options are correct.

A

charter of incorporation.

50
Q

A typical branch banking organization:
A. has complete centralization of authority.
B. has complete decentralization of authority.
C. has partial decentralization of authority.
D. is completely operated by regulators.
E. is completely operated by shareholders.

A

has partial decentralization of authority.

51
Q 
Which of the following is one of the few states that has opted out of interstate banking?
A. New York
B. Ohio
C. Texas
D. Montana
E. None of the options are correct
A

Montana

52
Q

The concentration of U.S. bank deposits in the hands of the largest banks has _________ recently.
A. declined
B. increased
C. remained essentially unchanged
D. exhibited large fluctuations in both directions
E. None of the options are correct

A

increased

53
Q 
Which of the following is one of the several advantages that bank holding company organizations have over other types of banking organizations?
A. Greater access to capital markets 
B. Tax advantage
C. Product-line diversification
D. Ability to use higher leverage
E. All the options are correct
A

All the options are correct

54
Q 
A company which owns stocks of three different banks is categorized as a(n):
A. unit bank.
B. interstate bank.
C. investment bank.
D. multi-bank holding company.
E. None of the options are correct.
A

multi-bank holding company.

55
Q

Which of the following is considered to be an advantage of branch banking?
A. Increased availability and convenience of services
B. Decreased chance of failure
C. Reduced transaction costs
D. Decreased chance of failure and reduced transaction costs
E. All the options are correct

A

All the options are correct

56
Q

Which of the following is a type of nonbank businesses a bank holding company can own?
A. Retail Computer Store
B. Security Brokerage Firm
C. Retail Grocery Store
D. Wholesale Electronic Distribution Company
E. All the options are correct

A

Security Brokerage Firm

57
Q 
A bank which offers its full range of services from only one office is known as a:
A. unit bank.
B. branch bank.
C. correspondent bank.
D. bank holding company.
E. None of the options are correct.
A

unit bank.

58
Q

Which of the following is a reason that many states and the federal government finally enact interstate banking laws?
A. The need for new capital in order to revive struggling local economies
B. The expansion of service offerings by nonbank financial institutions
C. The belief among regulators that larger firms may be more efficient and stable
D. Advances in technology which allowed banks to service customers in broader geographic
areas
E. All the options are reasons for the passage of interstate banking laws

A

All the options are reasons for the passage of interstate banking laws

59
Q

What is a bank holding company?
A. It is a bank that offers all of its services out of one office
B. It is a bank that offers all of its services out of several offices
C. It is a corporation formed to hold the stock of one or more banks
D. It is a merchant bank
E. None of the options are correct

A

It is a corporation formed to hold the stock of one or more banks

60
Q

Which of the following is a type of service that a bank holding company is not allowed to own?
A. Merchant banking company
B. Savings and loan association
C. Retail electronics equipment sales company
D. Security brokerage firm
E. Insurance agency

A

Retail electronics equipment sales company

61
Q 
Over the last half-a-decade, the number of banks in the U.S. has \_\_\_\_\_\_\_\_\_\_ and the number of branches has \_\_\_\_\_\_\_\_.
A. declined; increased 
B. grown; increased
C. grown; decreased 
D. declined; decreased 
E. stabilized; stabilized
A

declined; increased

62
Q

Websites known as electronic branches offer all of the following except:
A. Internet banking services.
B. ATMs.
C. point of sale terminals.
D. computer and phone services connecting customers.
E. traveler’s checks.

A

traveler’s checks.

63
Q 
Relative to manufacturing firms, banks tend to have \_\_\_\_\_\_\_\_\_\_\_ number of board members.
A. same
B. larger
C. smaller
D. insignificant
E. None of the options are correct
A

larger

64
Q 
About a quarter of all commercial banks in the U.S. are:
A. investment banks 
B. branch banks
C. unit banks
D. virtual banks
E. bank holding companies
A

unit banks

65
Q

A ‘typical’ community bank is committed to:
A. attracting deposits from large companies.
B. attracting deposits from high net-worth individuals. C. making loans to large corporates.
D. making loans to small households.
E. None of the options are correct.

A

attracting deposits from large companies.

66
Q 
A "typical" money center bank:
A. has a complex organizational chart.
B. is often plagued by span of control.
C. is owned by a bank holding company.
D. is well diversified—both geographically and by product line. 
E. All the options are correct.
A

All the options are correct.

67
Q 
Majority of banks today are:
A. federally chartered. 
B. uninsured.
C. state chartered.
D. national banks.
E. All the options are correct.
A

state chartered.

68
Q 
Member banks are:
A. members of the FDIC.
B. national banks.
C. unit banks.
D. members of the Federal Reserve System in the U.S. E. All the options are correct.
A

members of the Federal Reserve System in the U.S.

69
Q 
\_\_\_\_\_\_\_\_\_\_\_\_ and \_\_\_\_\_\_\_\_\_\_\_ banks tend to be larger and hold more of the public's deposits in the United States.
A. National, member 
B. State, nonmember 
C. National, uninsured 
D. State, insured
E. None of the options are correct
A

National, member

70
Q

Which of the following is a reason for the rapid growth in branch banks?
A. Exodus of population from cities to suburban areas B. Bank convergence
C. Business failures
D. Decreased costs of brick-and-mortar
E. All the options are correct

A

Exodus of population from cities to suburban areas

71
Q

Under the Bank Holding Company Act, control of a bank is assumed to exist only if:
A. The bank holding company acquires 100% of at least one bank’s outstanding stock
B. The bank holding company acquires 50% or more of at least one bank’s outstanding stock
C. The bank holding company acquires 25% or more of at least one bank’s outstanding stock
D. The bank holding company acquires at least three banks
E. None of the options are correct

A

The bank holding company acquires 25% or more of at least one bank’s outstanding stock

72
Q 
When a bank holding company acquires a nonbank business it must be approved by the:
A. FDIC.
B. Comptroller of the Currency. 
C. Federal Reserve.
D. SEC.
E. All the options are correct
A

Federal Reserve.

73
Q

Many financial experts believe that the customers most likely to be damaged by decreased competition include:
A. large corporations in large cities.
B. households and business in smaller cities and towns.
C. households that earn more than a million dollars a year.
D. students away at college.
E. None of the options are correct.

A

households and business in smaller cities and towns.

74
Q

According to Levonian and Rose, in order to achieve some reduction in earnings risk, interstate banks must:
A. expand into different product lines.
B. expand into a number of different regions.
C. increase the number of people in the management. D. increase the number of employees.
E. buy smaller banks.

A

expand into a number of different regions.

75
Q 
Consolidation, particularly among saving associations, finance companies, credit unions, security firms, and insurance companies, is:
A. occurring at a rapid pace.
B. non-existent.
C. occurring at a slow pace.
D. disapproved of by the regulators. 
E. None of the options are correct.
A

occurring at a rapid pace.

76
Q 
Of the following countries in Europe, which one has the largest number of banks?
A. Belgium
B. France
C. Germany
D. Great Britain
E. None of the options are correct
A

Germany

77
Q 
Which of the following country's banks were owned by the state until the 1990's?
A. Belgium 
B. France 
C. Germany 
D. Italy
E. None of the options are correct
A

Italy

78
Q

When different financial service providers offer a similar range of services including banking,
insurance and securities services, it is known as:
A. consolidation.
B. convergence.
C. economies of scale.
D. e-efficiencies.
E. None of the options are correct.

A

convergence.

79
Q 
Gradual evolution of markets and institutions such that geographic boundaries do not restrict financial transactions is known as:
A. deregulation. 
B. integration.
C. re-regulation. 
D. globalization. 
E. moral suasion.
A

globalization.

80
Q 
Banks with \_\_\_\_\_\_\_ in assets are generally called community banks.
A. more than $1 billion 
B. less than $1 billion 
C. more than $5 million 
D. less than $1 trillion 
E. more than $1 trillion
A

less than $1 billion

81
Q 
Nonbank financial firms that supply insurance coverage to customers borrowing money to guarantee repayment of a loan are referred to as:
A. merchant bankers.
B. factoring companies.
C. savings associations.
D. investment bankers.
E. credit insurance underwriters.
A

credit insurance underwriters.

82
Q

A financial holding company (FHC), defined as a special type of holding company that may offer the broadest range of financial services such as securities and insurance activities, was allowed under which act?
A. Riegle-Neal Interstate Banking and Branching Efficiency Act
B. The Competitive Equality in Banking Act
C. The Basel Agreement
D. The FDIC Improvement Act
E. The Gramm-Leach-Bliley (Financial Services Modernization) Act

A

The Gramm-Leach-Bliley (Financial Services Modernization) Act

83
Q 
A bank devoted principally to the markets for smaller, locally based deposits and loans is often
referred to as a(n):
A. wholesale bank. 
B. retail bank.
C. commercial bank. 
D. investment bank. 
E. social bank.
A

retail bank.

84
Q 
Senior management of a community bank reports periodically to the:
A. management.
B. managing director. 
C. CEO.
D. board of directors. 
E. stockholders.
A

board of directors.

85
Q 
A money center bank is typically owned by:
A. private equity companies. 
B. bank holding companies. 
C. foreign banks.
D. hedge funds.
E. mutual funds.
A

bank holding companies.

86
Q 
In recent years, organizational hierarchy in banks is increasingly becoming more:
A. simpler. 
B. complex. 
C. vertical. 
D. horizontal. 
E. flat.
A

complex.

87
Q

One reason for the fairly large number of unit banks in the United States is:
A. de-merger of branch banks.
B. low profitability in larger banks.
C. continuous formation of new banks.
D. regulations prohibiting formation of branch banks. E. All the options are correct.

A

continuous formation of new banks.

88
Q 
Outside the United States, the holding company form:
A. is usually legal and very popular. 
B. is usually legal but not often used. 
C. is not legal.
D. is not legal yet popular.
E. is legal but never used.
A

is usually legal but not often used.

89
Q

A bank holding company that wishes to acquire _________ or more of equity shares of an
additional bank must seek approval from the Federal Reserve Board.
A. 5 percent
B. 10 percent
C. 15 percent
D. 25 percent
E. 51 percent

A

5 percent

90
Q 
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ manage and care for the property of businesses, individuals, and non-profit organizations.
A. Insurance companies 
B. Holding companies
C. Real estate companies 
D. Trust companies
E. Factoring companies
A

Trust companies

91
Q 
\_\_\_\_\_\_\_\_\_\_\_\_ offer savings deposit plans and housing related credit, predominantly to individuals and families.
A. Insurance companies 
B. Real estate companies 
C. Trust companies
D. Factoring companies 
E. Savings associations
A

Savings associations

92
Q 
In theory, if an interstate organization can acquire banks in states where bank earnings have a \_\_\_\_\_\_\_\_\_\_\_\_\_\_ with bank earnings in those states where the interstate company is already represented, a "portfolio effect" may occur.
A. perfectly positive correlation 
B. negative correlation
C. zero correlation
D. zero covariance
E. positive covariance
A

negative correlation

Banking Operations (5 decks)

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